Hi,
I had this problem when updating to iTunes 7.4.1.2 and have now fixed it.
The solution is here:
http://docs.info.apple.com/article.html?artnum=93499
Note that the real problem was that the Shuffle was appearing in My Computer for a few seconds before disappearing, so it was impossible to apply the fix as described.
To solve this issue, attach your Shuffle, click on it in iTunes, then go to Settings.
On this page go to the bottom and 'enable disk use'. I set the slider so it only used 3MB, so no real loss.
Now disconnect and reconnect the Shuffle. It will now appear in My Computer as a proper removable drive.
You can now apply the fix linked to above. Voila 🙂
hope that helps!
Kenji